SBI Cards Q3 Results Review - Asset Quality Continues To Disappoint; NIMs Stable: Motilal Oswal

Motilal Oswal Report

SBI Cards and Payment Services Ltd. reported another muted quarter as profit after tax missed our estimate by 8% due to high provisions (14% higher than our estimate). PAT declined 9% QoQ to Rs 5.49 billion in Q3 FY24. Net interest income grew 7% QoQ (largely inline).

Margin was flat QoQ at 11.3% as an increase in yields was largely offset by an increase in cost of fund. The share of revolver further moderated, while EMI mix was stable. Spending growth was healthy at 41% YoY/22% QoQ, with retail spending up 35% YoY and corporate spending up 64% YoY.

Asset quality remained under pressure, with gross/net non-performing asset ratios increasing 21 basis points/7 bp QoQ to 2.64%/0.96%. Return on asset/return on equity too moderated to 4.1%/19.2%. Further, the increase in risk weights impacted capital adequacy ratio by ~400 bp to 18.4%.

We further cut our FY24E/FY25E earnings per share by 2%/3%, factoring in higher credit costs. While we expect SBI Cards to deliver healthy earnings compound annual growth rate over FY24-26 however the disappointing earnings run-rate over past several quarters which has driven consistent cut in our estimates along with limited near term earnings visibility keeps us watchful.

We downgrade our rating to 'Neutral' with a revised target price of Rs 850 (premised on 21 times September-25E EPS)

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